Investment Banking Market 2011

Market Analysis and StatisticsG00210122

Market Insight: Investment Banking and CapitalMarkets Primer, 2011Published: 26 January 2011

Analyst(s): Kristine Pfeiler

This research is a companion to the investment services primer (see "MarketInsight: Investment Services Primer, 2010") as it provides an in-depthanalysis into the subvertical industry of investment banking and capitalmarkets also known as the sell side. It is one of a series of industry primers.Industry managers in marketing, sales, product management, or servicestargeting or working in this sector will gain a top-level view of the sector'sbusiness trends, IT investment priorities, inhibitors, IT spending, go-to-market messaging guidelines, and key influencers. IT investments are a topfocus for both the business and IT due to their criticality in ensuringcompliance with new regulations, their enablement of expansion, and ahigher scrutiny on costs as the investment banking and capital marketsfirms face tightening profit margins and a volatile economic environmentaffecting capital markets revenue streams.

Key Findings Ensuring compliance with regulations continues to be a top focus in 2011. Regulations will

impact this sector most in derivatives, trading analytics and revised and/or additional regulatoryreporting.

Additional market trends driving strategic and tactical technology investments includecontinued merger and acquisition (M&A) activity within the sector, geographic expansion andproduct expansion.

Firms continue to focus on cost containment and reduction, favoring operating expenditure(opex) over capital expenditure (capex) while trying to prepare for regulations and makestrategic investments to grow the business.

Key messaging themes include regulatory compliance, operational efficiency and control,technology as innovator, and cost containment and structure. Marketing messages must still betargeted to each area within the sector in which the messaging theme takes on a specific flavor.

Recommendations Product or industry marketing: Refine overall industry messaging to be specific for each

targeted subsegment; not all IT spending drivers have the same priority or the same impact. Forexample, the regulatory impact for a derivatives trader is very high, causing a transformation ofthe settlement and clearing processes, while the investment banker feels the regulatory impactthrough restricted activities in principal investing and higher capital requirements likely resultingin long-term, fundamental business model and organizational changes, rather than immediateprocess changes.

Sales: Position new products in mature markets as a gradual evolution rather than a "rip andreplace" where possible. Provide a road map for the client, highlighting features such asservice-oriented architecture (SOA) or interoperability that help migrate a firm to a more open,flexible IT landscape to combat the rigidity of legacy IT environment, which can be a majorinhibitor as firms present a complex myriad of applications tied together with manyinterdependencies.

Product management: Embrace alternative pricing structures that reduce initial capitalinvestment and favor opex over capex as new regulations are also expected to adverselyimpact a firm's bottom line with requiring higher capital requirements and increasing the cost ofrisk.

Table of Contents

Analysis..................................................................................................................................................3

Introduction......................................................................................................................................3

Investment Banking and Capital Markets Industry Overview.............................................................3

Segmentation and Organizational Structure......................................................................................4

Business Priorities and Key Technology Inhibitors and Drivers..........................................................7

Key Drivers of IT Spending..........................................................................................................7

Key Inhibitors of IT Spending......................................................................................................9

Investment Banking and Capital Markets Solution Map....................................................................9

Solution Areas..........................................................................................................................11

Capital Markets (Sales, Trading, Research)...............................................................................11

Background and Context.....................................................................................................................12

The Impact...........................................................................................................................................12

IT Spending and Forecast...............................................................................................................12

Assumptions for Sizing the Market............................................................................................12

Assumptions for Growth...........................................................................................................13

Forecast...................................................................................................................................13

Buying Centers, Messaging Map and Key Influencers.....................................................................15

Page 2 of 22 Gartner, Inc. | G00210122

Buying Centers and Messaging Map........................................................................................15

Key Influential Groups...............................................................................................................18

Conclusion...........................................................................................................................................20

Short Term.....................................................................................................................................20

Long Term......................................................................................................................................20

Recommended Reading.......................................................................................................................20

List of Tables

Table 1. Organization Structure Within Investment Banking and Capital Markets Firms...........................6

Table 2. Investment Banking and Capital Markets Solution Map...........................................................10

Table 3. Investment Banking and Capital Markets IT Spending Forecast (Billions of Dollars).................14

List of Figures

Figure 1. Investment Services Industry Segmentation.............................................................................5

Figure 2. Investment Banking and Capital Markets Messaging Map......................................................17

Figure 3. Key Influencers......................................................................................................................19

Analysis

Introduction

The objective of this document is to provide technology and service providers targeting theinvestment banking and capital markets industry with a foundational understanding of the industry.It is intended for industry marketing and product management roles, as well as customer-facingsales and service professionals seeking insight into industry segmentation, organizational structure,market trends, IT spending, buying centers and messaging guidelines.

Investment Banking and Capital Markets Industry Overview

Gartner defines the investment services industry using standard industry classification codes(NAICS rev. 4 or SIC) and includes securities, commodity contracts and other financial investmentsand related activities (NAICS 523, SIC 621,622) and funds, trusts, and other financial servicesinstitutions, including banks, asset managers and exchanges. This primer focuses on a subverticalof the investment services industry the investment banking and capital markets sector. Theinvestment banking and capital markets industry includes two primary activities of raising capital forcorporations, governments and other institutions and financial advisory services, such as M&As,

Gartner, Inc. | G00210122 Page 3 of 22

capital restructuring, and buyouts. Adjacent or supporting activities for these primary functionsconducted by investment banks include market making and research.

Top players in the industry are global, large universal banks or bank holding companies withinvestment banks subsidiaries within the universal bank. Global leaders include Bank of AmericaMerrill Lynch, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan Chase, MorganStanley and UBS. Additional business models found in the industry include pure-investment banks,boutique advisory firms, and broker-dealers. Pure-investment banks are not associated with, or apart of, a commercial bank but conduct the primary activities of capital raising and advisoryfunctions. Example firms using this business model include Brewin-Dolphin and Lazard CapitalMarkets.

Boutique advisory firms provide advisory investment bank functions but do not underwrite orperform market distribution or market making. These firms are often smaller than the other models.Example firms include Duff & Phelps and McColl Partners. Brokers and broker-dealers provideaccess to markets and perform transactions but not underwriting or advisory functions. Althoughmost investment banks are also broker-dealers, some pure brokers exist such as InvestmentTechnology Group and Jones Trading. Although different firms may pursue a certain model or acombination of models, the most-critical information for technology and service providers (T&SPs)to understand about a firm in this industry sector is which functions the firm provides, because thisfinding is one of the main factors influencing the firm's technology needs.

Segmentation and Organizational Structure

As previously defined in Gartner's primer on the investment services industry (see "Market Insight:Investment Services Primer, 2010"), Gartner has segmented the investment services industry intofour sectors illustrated in Figure 1.


Figure 1. Investment Services Industry Segmentation

Investment Banks/ Capital Markets

Asset Managers/ Institutional

Investors

Exchanges, Agencies and

Services

Investment Banking,Securities Dealing

(NAICS 52311/52313,SIC 621,622)

Brokerage Houses(NAICS 52312/52314,

SIC 621,622)

Securities and Commodity Exchanges

(NAICS 52321, Sic 623)

Hedge Funds(NAICS 52391,

SIC 621)

Asset Management (NAICS 52392,

SIC 621)

Investment Advice (NAICS 52393,

Sic 628)

Transfer Agency(NAICS 52399,

SIC 6289)

Insurance and Employee

Benefit Funds(NAICS 5251)

Other Investment Pools and Funds (NAICS 5259,

SIC 628)

Investment Services

Investment Advisor/Wealth Manager

Clearinghouse Services

(NAICS 52399, SIC 6289)

Custody Services(NAICS 52399,

Sic 6289)

Reference/MarketData Providers

(NAICS 52399, Sic 6289)

Private Equity/Venture Capital

(NAICS 52392, SIC 621)

Prime Broker(NAICS 52312,

SIC 622)

Source: Gartner (January 2011)

Within investment banking and capital markets institutions, the front-office organizations are alignedby services or product areas at the top of the organization. Typical departments and relatedactivities are shown in Table 1. Additional middle-office and back-office functions are also within thefirm; some of these functions are grouped organizationally with the same structure as the frontoffice, while other more administrative functions are across the entire firm.


Table 1. Organization Structure Within Investment Banking and Capital Markets Firms

Department Areas Activities

InvestmentBank

IndustryCoverageGroups

Investment bankers create financial advisory relationships withcorporate and government entities to advise and sell services bypitching deals. These bankers are arranged by industry (e.g.,healthcare).

ProductGroups

Product specialist bankers create financial advisory relationshipswith corporate and government entities to advise and sell specificproducts. Example product areas: Debt markets finance Equity markets Corporate finance Project finance Public finance Structured finance M&As Advisory Private placement

CapitalMarkets

Fixed Incomeor Debt CapitalMarkets

Various roles within debt capital markets facilitate the distribution ofthe securities and products.Syndicate places into market investment bank deals for debt capitalmarkets.Sales creates relationship with institutional investors for primary andsecondary market.Traders own the P&L for the trading inventory, provide liquidity andmake markets by conducting transactions with the investorcommunity.

Equity or EquityCapital Markets

Various roles within equity capital markets facilitate the distribution ofthe securities and products.Syndicate places into market investment bank deals for equity capitalmarkets.Sales creates relationship with institutional investors for primary andsecondary market.Traders or sales traders own the P&L for the trading inventory,provide liquidity, and make markets by conducting transactions withthe investor community.

Research Fixed Fixed-income security analysts are typically industry-focused andpossibly asset-class-focused. Main activities include analyzing andpublishing reports on issuers of debt.


Equity Equity security analysts are typically industry-focused. Main activitiesinclude analyzing and publishing reports on issuers of equity.

P&L = profit and loss


Each department's client base, activities, products or services delivered affect the culture as well asthe technology needs, and typically, but not always, a vendor will dominate in one area but not all.T&SPs targeting and selling into this sector should understand the nuances between areas. If avendor holds strength in one area, that does not preclude penetration opportunities elsewhere.Developing a well-defined targeting strategy based on a thorough understanding of the varioussegments within investment banking and capital markets is advised. Each area is highly specialized;reference clients are much more valuable when in the same area than general reference clientsacross the investment banking and capital markets industry. Within the front and middle office andsome segments of the back office, retail banking and other financial services reference clients orexamples are not as strong as those from within the investment banking and capital marketsindustry.

Business Priorities and Key Technology Inhibitors and Drivers

Key Drivers of IT Spending

Top drivers for IT spending across the investment banking and capital markets sector are regulatorycompliance. including risk management practice improvement and operational efficiency, asindicated through Gartner surveys, client inquiries, industry discussions and secondary research.The remainder of drivers all focus on growth through expansion, innovation and acquisition, whichwill be more specific to an individual firm:

Increasing Regulation Although there is uncertainty about how regulations will play out withspecific lines of business or how they might impact market structure, new regulations arecertain to positively impact IT spending in 2011 as firms gear up to address these newregulations. Being in compliance and showing compliance will require investment in ITsolutions, thus creating opportunities in both solutions and services. It is important to note thanmany of the intended regulations are still in definition phase in the regulatory bodies that mustcreate new regulations and enforce the intent of initial acts. Many of the regulations will alsohave transition periods in which a firm is granted a specific time period to meet newrequirements, and regulators also have the ability to grant extensions in certain cases.

Restricted Activities Regulations such as the Dodd-Frank Act and specifically themodified Volcker Rule will restrict the activities of an investment bank within a bank holdingcompany in areas such as principal investing. Although riskier than other activities, principalinvesting and trading have been a source of high profits for investment bank and capitalmarkets firms. Investment banks will need to classify trading activity to distinguish between


activity for the purposes of providing liquidity or market making acceptable activitiesversus principal investing or proprietary trading a restricted activity.

Derivatives Many of the new regulations target the derivatives markets, includingmandatory trade execution of swaps on an exchange or swap execution facility andmandatory clearing for listed swaps. These regulations will cause capital markets firms andothers in the derivatives market to revise processes and solutions to work with newprocesses. The new regulations have also created new business opportunities withGoldman Sachs, Bank of America, Citigroup, Deutsche Bank and JP Morgan Chase to helpclients clear trades through clearinghouses. Bank of America was the most recent toannounce a new line of business in September 2010, Global Futures and DerivativesClearing Services, predicting substantial growth in the OTC derivatives clearing market.

Capital Requirements and Risk Management Although the biggest impact of newcapital requirements and related changes is the negative impact on a firm's bottom line,new capital requirements in Basel III will require firms to revise their reporting to meet newregulations. Additional focus on risk management and achieving excellence in riskmanagement and operational controls continue through 2011, as firms address riskmanagement issues exposed during the financial crisis.

Systemic Risk Additional requirements for reporting will likely required for thosefirms deemed "too big to fail." This new reporting will create new data managementrequirements. The intent of this regulation is to understand targeted, material risks frominterconnectedness of the largest global institutions. Within the US, two new regulatorybodies have been formed, the Financial Stability Oversight Council and the Office ofFinancial Research, to address how to monitor this risk and what new requirements, ifany, will be required. In Europe, the decision to create the European Systemic RiskBoard (ESRB) was made in December of 2010.

Operational Efficiency Profit margin pressure and an elevated focus on risk managementwill drive firms to pursue projects that improve business processes, resulting in operationalefficiency gains, better risk management capabilities and improved operational controls.Business process improvement initiatives, risk analytics, back-office process improvements,end-to-end product flow process improvements, and an emphasis on data management,including market and reference data, are all areas firms are pursuing.

Continued M&As Since the 2008 crisis and recession, M&As in the financial services sectorhave been increasing. In 2010, the industry witnessed 263 transactions. The trend is expectedto continue in 2011, as additional firms merge to strengthen balance sheets or divest noncorebusinesses. Mergers require substantial integration projects involving business planning,complex program management and project management, technology analysis, IT portfoliorationalization, system integration and potentially decommissioning or the purchase of newproducts when neither platform nor application meets the requirements of the new business.

Global Economy Expansion and Growth Market Opportunities After the crisis and therecession, investment banking and capital markets firms' belief in the global economy andemerging markets as a key part of their growth strategy was further strengthened. Globaleconomic expansion is increasing the prospective client base for global companies with sizable


market capitalization. Emerging or growth markets continue to build their contribution to therevenue mix of investment bank and capital markets firms. Both trends present opportunity forgrowth and both trends will increase flow and volume globally. Many firms cite expanding thegeographic and product presence as key drivers for revenue growth in 2011. Higher transactionvolume, as well as new offices and additional hiring, is anticipated as firms undertakeexpansion.

Increasing Role of Technology Technology is not just supporting the business ofinvestment banking and capital markets but has also become a core part of the productoffering. Innovations in technology can be products themselves, such as high-frequencytrading, or enable bifurcated product strategies in the case of high-touch and low-touchofferings within a single business line. Within the industry, an important differentiation a firm canhave is the firm's ability to quickly respond to the market and changing customer needs with theright systems, products and services. Firms will seek to exploit technology innovation toachieve differentiation. Example areas of focus include ever-faster improvements in low latency,as emerging markets offer high-frequency trading, analytic and hardware acceleration toincrease processes such as pricing and valuation, and real-time information around risk.

Key Inhibitors of IT Spending

Some of the same factors that are pushing technology spending are also acting as inhibitors.

Increasing Regulation Regulations are impacting IT spending negatively in two ways:

Negative impact on profitability reduces overall funds available for IT spending. Investmentbank and capital markets firms are bracing for the continued evolution of capitalrequirements and leverage ratios that are expected to raise the cost of capital and risk,dragging down profits for the industry. T&SPs should expect to see increased justificationrequired for IT spending and higher levels of scrutiny on how each IT dollar is spent.

Continued uncertainty as regulations are drafted, revised and implemented creates short-term focus and hesitancy on long-term commitments. T&SPs should expect to see longersales cycles and a more difficult sell in long-term commitments.

Legacy Technology Investment Investment banks and capital markets firms have beenaggressive adopters of technology and, therefore, have significant investments in legacybusiness applications and infrastructure, making new solutions and technologies more difficultto embrace and adopt. Integration to aging applications and infrastructure can also add toimplementation costs as well as implementation risk. T&SPs position new products as gradualevolution rather than a "rip and replace" where possible. In addition, they should highlight thefeatures of an offering that will help migrate a firm to a more open, flexible IT landscape.

Investment Banking and Capital Markets Solution Map

Solution areas within an investment banking and capital markets firm are grouped within thecategories of front office, middle/back office, enterprise and communications. Front-officeapplications are there to support the business activities of investment bankers, relationship


managers, sales, traders and research analysts, as well as client-facing support or corporate areas,such as individuals in client services, marketing, and events. Middle-office and back-office solutionsinclude operations such as clearing and settlement, finance, risk management, static data andcompliance. Enterprise solutions support general business activities, such as HR, procurement, aswell as infrastructure needs, such as storage, security and collaboration. Communications includesnetwork and telecommunications needs. The Table 2 solution map represents a graphicalpresentation that explains how the market's IT landscape is perceived in terms of the majorbusiness functions in each area of business activity. Although the solution map segments solutionareas within a functional business area, such as capital markets to front office and middle/backoffice, the rise of straight-through processing (STP) as a discipline enables automation of the fulltrade process from the front office to the back office, eliminating manual handoffs and rekeyingbetween systems.

Table 2. Investment Banking and Capital Markets Solution Map

Segment Front Office Middle/Back Office

InvestmentBanking

CRM, deal management, pitch book,marketing, customer profitability, clientanalytics, market data, productdevelopment, product origination,syndication, portfolio management

Risk management, regulatory reporting,reference data management, portfoliomanagement (BO), corporate actions,compliance, fee billing, regulatoryreporting

Capital Markets Contact center, pretrade compliance,account setup and management, tradeplatform and execution, ECN, tradeanalytics, derivatives management,pricing, risk, product development,product origination, syndication, portfoliomanagement, sales order managementand routing, investor performanceanalytics, sales attribution, commissionResearch only:Conference/event management, contentmanagement

Risk management, reference datamanagement, market datamanagement, portfolio management(back office), corporate actions,compliance, fee billing, paymentprocessing, reconciliation, transferagency/record keeping, custody,securities lending, post-tradecompliance, trade/confirm matching,clearing and settlement, regulatoryreporting

Enterprise

Communications Telco services and equipment, IM, e-mail, mobile, mobile services, WebconferencingTrading only turrets, squawk box

Administrative andEnterpriseOperations

Cash management, finance and accounting, HR, procurement/vendor mgmt., appservers, storage, OS, DBMS/Data Warehousing, MDM, BPM, workflow, businesscontinuity, security, e-mail, collaboration, document and imaging management,

portals, middleware



Solution Areas

Investment Banking

Front Office The front office consists of senior management, bankers, analysts and juniorresources. Client coverage in investment banking is most often industry-based, requiringbankers to be highly mobile as they cover an industry regardless of geographical area or acrossa broad geographic region, such as North America or Europe. Front-office solutions focus onCRM, require the use of industry data by providers such as deals in market and league tables,and focus on facilitating and managing deals. Comprehensive industry, competitive and clientinsight rely heavily on strong analytics and external data.

Middle/Back Office The middle and back office in investment banking provide front-officesupport services in the areas of market data, industry research, document production, graphicservices and expense billing. Risk management and compliance functions require solutions tomanage risk across products and meet regulatory reporting requirements.

Capital Markets (Sales, Trading, Research) Front Office The front office consists of senior management, bankers, syndicate, traders,

institutional sales, research and others such as marketing and events. Technology needs varyby user base:

Syndicate supports the deal flow once mandated through completion, including solution-support activities, such as deal structuring, marketing, pricing, capturing indications ofinterest, capturing orders, final pricing, issuance to market and closing the deal. Syndicatecollaborates a great deal with the investment bankers, lawyers, client, ratings agencies, andother external parties.

Trading is a high-technology use group requiring low latency information on market dataand trade transactions. Multiple trading systems can be found in one shop to supportmultiple product types equities, derivatives, commodities, bonds, structured bonds andloans, for example. Demand for real-time analysis for pretrade risk analytics to post-traderisk analysis is extremely high; regulations such as Market in Financial Instruments Directivein Europe have elevated this demand. Market data and external information is usedextensively in many activities throughout the trading floor.

Institutional sales sell to institutional investors requiring solutions that support clientmanagement, information insight regarding the market, past trades, holdings, research,preferences and collaboration.

Research analysts cover issuing firms. Solutions typically include client management,content management, publishing and event management.

The front office is technology-heavy requiring low-latency information and processing onmarket data, trade transactions and often involve large amounts of data. The front office isincreasingly automated with electronic communication networks (ECNs), algorithmic tradingand other advancements in trading technologies becoming present in every shop.


Middle and Back Office The middle and back office provide many services to support front-office activities including risk management, compliance and regulatory reporting, market data,settlement, clearing, and cash management.

Communications

The investment bank and capital markets sector is an intense user of communications solutions.Investment banking is a highly mobile workforce, while capital markets is a low-latency, high-volume, high-throughput business. Mobile applications are gaining increasing acceptance anddemand targeted for the banker, institutional salesperson and research analyst; mobile applicationstargeted to the trader are less appealing because most traders, buy side or sell side, haverestrictions on where they can do a trade for surveillance and compliance reasons. Demand formobile applications targeted to external customers is beginning in areas such as institutionalresearch delivery, as seen in JP Morgan's research app for the iPad. Connectivity to exchanges,custodians, clearinghouses and other industry-specific networks, such as Bloomberg, andalternative trading networks (also known as ECN), such as BondDesk and ForEx, is critical for dailyoperations. Communication solutions specific to trading include turrets and squawk boxes.

Administrative and Enterprise Operations

Administrative and enterprise operations support administrative functions including, but not limitedto, HR, finance and procurement as well as common infrastructure solutions, such as master datamanagement, reference data management, B2B gateways and messaging middleware.Compensation systems are of high importance, as the industry is known for a high incentive-to-base ratio, as well as for competition for key resources among firms. Master data management andreference data management are key focus areas to address and support new regulations and riskmanagement practices.

Background and ContextThe investment banking and capital markets service industry faces many regulatory changes andadditions as it heads into 2011. In addition, firms must begin to make strategic investments to growand differentiate the business through expansion, potentially acquisitions, and productinnovation.

The Impact

IT Spending and Forecast

Assumptions for Sizing the Market

Gartner's quarterly IT spending forecast by vertical industry (see "Forecast: Enterprise IT Spendingfor the Banking and Securities Market, Worldwide, 4Q10 Update") forecasts IT spending for the


"banking and investment services" industry. This forecast provides detailed forecasts for the twosubverticals banking and investment services. For the purposes of this primer analysis, Gartnerhas forecast the sector within investment services of investment banking and capital markets only.The investment banking and capital markets forecast is a modeled forecast with constraints basedon the broader investment services forecast.

Gartner has applied a top-down model forecast approach that analyzes the investment banking andcapital markets sector revenue (excludes buy-side firm revenue and asset management revenue oflarger sell-side institutions) and estimates percentage of total sector revenue attributed to overall ITspending across hardware, software, IT services, communications and internal services modeledwith industry growth rates. The model sourced sector revenue from annual reports of investmentbanking and capital markets firms and 2010 regional industry revenue splits from Dealogic.

Assumptions for Growth

These assumptions factored into the growth of the investment banking and capital markets globalIT spending forecast:

Emerging markets may have faster growth rates due to faster expansion of investment bankingand capital markets activities.

As the model is revenue-based, principal investing revenue was included in the trading revenuenumbers, because they are not often split out within annual reports of investment bank andcapital markets firms. It is expected that this sector will reduce principal investing over time dueto regulations.

Forecast

Gartner projects the investment banking and capital markets IT spending forecast to grow from$68.7 billion to $85.5 billion by 2014 with a 5% compound annual growth rate (CAGR). Table 3highlights regional differences in the forecast.


Table 3. Investment Banking and Capital Markets IT Spending Forecast (Billions of Dollars)

2009 2010 2011 2012 2013 2014AGR (%)

2010AGR (%)

2011AGR (%)

2012AGR (%)

2013AGR (%)

2014CAGR (%)2010-2014

North Ameri-ca

35,035 36,157 37,603 39,483 41,576 43,696 3.20 4.00 5.00 5.30 5.10 4.85

EMEA 24,044 23,683 24,299 25,465 26,777 27,781 -1.50 2.60 4.80 5.15 3.75 4.07

Asia/Pacificand Others

9,618 10,502 11,269 12,171 13,083 13,986 9.20 7.30 8.00 7.50 6.90 7. 42

Total 68,697 70,342 73,171 77,119 81,436 85,463 2.40 4.02 5.40 5.60 4.95 4.99

AGR = annual growth rate



Buying Centers, Messaging Map and Key Influencers

Buying Centers and Messaging Map

Although most investment banking and capital markets firms have similar organizational structuresfor the line of business, the IT organization and how it operates may vary from firm to firm.

IT embedded in the business Some firms embed IT into the line of business, making mostlarge IT investments both a business and IT buyer. Primary buyers can include the followingroles:

CIO or division information officer (DIO)

Line-of-business managing director/VP

Line-of-business COO or chief administrative officer (CAO) or designated "businessmanager" role

Operations VP in the case of a back-office-driven investment

IT outside the business In other firms, IT is outside of the line of business in which the CIOor DIO is the primary buyer.

In either organizational model, the business is often a decision maker. Most firms have a line-of-business-specific COO, CAO or "business manager" position that deals with all areas and issuesnot directly related to generating revenue on the desk client-facing, selling or trading. Thisposition can be a buyer decision maker as well but will look to IT for final sign-off and IT "fit" withthe existing and future IT environment. Compliance and risk often get involved and have influencewith regard to vendor risk or operational risk and regulatory compliance of proposed solutions.

Across the buying centers, the following key messaging themes in 2011 emerge.

Regulatory compliance Ensuring regulatory compliance within the mandated time frames isextremely important. Messaging around industry experience, proven capabilities to meetrequirements within specific timelines, and implementation success tie well into regulatory-driven initiatives.

Operational efficiency and control Regardless of the business area, firms are looking toimprove business processes with the objective to improve efficiency impacting the bottom lineand improve control, thus reducing operational risk.

Technology as innovator Technology is viewed as a critical component to enable thebusiness strategies of expansion and growth, as well as defending market share throughcontinued differentiation.

Cost containment and cost structure Previous Gartner analysis for the broader investmentservices industry indicates modest budget growth overall but also acknowledges that themajority of budgets remain flat into 2011 (see "Market Insight: IT Spending Polarization OffersPockets of High Growth Within an Overall Flat Market"). Although firms must spend to meet


new regulations, improve processes and support revenue growth, they will look to make themost of the IT spending.

Although there are key messaging themes, it is important for T&SPs to craft marketing messagesthat are specific to each role and area within the sector in which the messaging theme takes on aspecific flavor. Role-specific messages are illustrated in Figure 2. Take the next step to craft bothrole- and sector-specific messages. Differences exist, for example, on what might be a focus foroperational efficiency from one department to another, such as fixed-income versus equities, orbetween organizational areas, such as the front-, middle- and back-office focus. Another exampleof how top-level messaging themes must become more targeted in execution is looking at the useof technology to drive innovation or differentiation. Within investment banking departments,technology can be exploited in the analytics areas to provide better information on clients tostrengthen relationships between the investment banker and the corporate customer, while on thecapital markets side, technology is exploited to offer a better quality of service to the customer,such as the use of in-memory analytics to reduce cycle time of pricing, differentiating the tradingfirm from the competition.


Figure 2. Investment Banking and Capital Markets Messaging Map

Goal of messaging varies according to the type of buyer. Vendors must target different buyers at all touchpoints in the purchase decision cycle to influence the decision to buy.

IT as a forceto enable

strategy, product, gain

differentiation and maintain operational efficiency

Focus on strategic nature of IT, fit with

future IT vision, improving

internal prestige

Vendor risk, cost, contracts

Functionality, speed of

implementationtotal cost of

ownership, fit with existing landscape

Functionality, ease of use,

speed of implementation

Focus on improving

reducing or not adding to

operational risk, adherence to regulations

Demonstrate cost discipline, opex

vs.capex

KeyVendor

Message/Themes

Buyer Focus Strategic Strategic/Tactical TacticalStrategic/Tactical Tactical TacticalStrategic

Medium High HighHigh Medium MediumMediumImpact on

Decision to Buy

Business BusinessIT Business Operational Risk Operational Efficiency, Risk

Cost Control, Capital Planning

Influencer Buyer Decision MakerBuyer

Decision Maker Influencer InfluencerPrimary Buyer Influencer

Focus

Buyer Role

CIO, Division Information

OfficerCOO, CAO CEO CFO, VP Finance Managing Director, Line of Business

Risk Manager, Compliance

VP, Procurement



Key Influential Groups

Industry direction is influenced by multiple groups, such as the dominant firms, the regulatoryagencies, industry associations, standards bodies, and even social network groups (see Figure3).For example, as the Commodities and Future Trading Commission considers ways to implementcentralized clearing, the Futures Industry Association (FIA), large firms, and exchanges areproposing methods and alternative approaches. Future regulation will likely involve creating newreporting entities to collect information and provide daily analysis, a change to a capital marketsfirms regulatory reporting and potentially a change to the underlying trade infrastructure and datawarehousing to meet a new cadence of reporting. An influencer not seen much before 2010 is theinfluence of social networking group on sites such as LinkedIn. These groups offer online and offlineopportunities to network. Common networking activities include discussing hot industry topics,debating industry regulations, and requesting suggestions on technology solution options. Industryparticipants can be influenced from trade journals, event and conferences such as SIFMA's annualTechnology Conference. Tech provider selection criteria can be directly influenced by key researchfirms, dominant consulting firms and colleagues as well.


Figure 3. Key Influencers

There are many country-specific regulatory agencies. Listedare a few of the major regulatory bodies in the major markets.

Asia/Pacific

Australian Securities and Investment Commission (ASIC) Australia

China Securities Regulatory Commission China

Securities and Futures Commission Hong Kong

Financial Services Agency Japan

Europe

Financial Services Authority (FSA) U.K.

EU Commission Europe

Federal Financial Supervisory Authority (BaFin) Germany

United States

Securities and Exchange Commission (SEC)

Financial Stability Oversight Commission (FSOC)

Office of Financial Research (OFR)

Commodities and Future Trading Commission (CFTC)

Regulatory AgenciesIndustry and Standards Associations

Many industry associations are instrumental in setting industry standards.

Financial Product Markup Language (FPML)

Futures Industry Association (FIA)

Enterprise Data Management Council (EDM)

International Capital Markets Association (ICAA)

Securities Industry and Financial Markets Association (SIFMA)

Securities Industry Association (SIA)

World Federation of Exchanges (WFE)

Publications

Bloomberg

Financial Times

Institutional Investor Magazine

Research Magazine

The Street.com

Wall Street Journal

Wall Street Technology

Waters Magazine

There are many industry- and technology-focused groups on social networks such as LinkedIn. Examples include:

Electronic Trading Group

Low Latency for Trading Infrastructure

Security Pricing and Valuations

Quant Finance

Women in Financial Markets

Social Network GroupsStandards

Organizations

Extensible Business Reporting Language (XBRL)

Financial Information Exchange (FIX)

ISO Technical Committee No. 68

Market Data Definition Language (MDDL)

SWIFT (industry co-op)

Investment Banking and

Capital Markets Decision

Maker



Conclusion

Short Term

Overall, the investment banking and capital markets sector faces "must do" IT investment to ensurenew regulation compliance, as well as continue to make process and technology improvements tobetter risk management capabilities or improve operational efficiencies through processimprovement. Strategic investments are being made to support revenue growth though geographicexpansion or product expansion. T&SPs need to align their messaging and value statements tothese overall drivers of IT investment to capitalize on where growth in IT spending is predicted tooccur.

Long Term

Regulations will continue to impact technology spending at investment banking and capital marketsfirms, as many regulations have yet to be finalized and will continue to take shape throughout 2011.In addition, many new regulations will set the compliance date well into the future, allowing firmstime to address the new requirements; some transition periods are as late as 2019. Gartner expectsthe balance of investments to shift from "must do" to more emphasis on growing the businessthrough geographic expansion and product innovation by 2012. Investment banking and capitalmarkets firms have always leveraged technology to support the business and drive innovation, suchas high-frequency trading. Firms will continue to exploit technology to deliver new products ordifferentiate with faster or better-quality services. T&SPs targeting this sector must assess thealignment between their current product offering and future product road map with the predicteddrivers of IT investment in the long term and realign service and product investments as necessary.

Recommended ReadingSome documents may not be available as part of your current Gartner subscription.

"Market Insight: Investment Services Primer, 2010"

"User Survey Analysis: North American Banking and Investment Services' IT Spending BudgetsFavors Software and Business Improvement"

"Forecast: Enterprise IT Spending for the Banking and Securities Market, Worldwide 3Q10 Update"

"Latest Survey Shows IT Investment Priorities for Banking and Investment Services Firms"


Acronym Key and Glossary Terms

Marketdistribution

Market distribution is the reselling of securities to the market.

Market making Market makers maintain bid and offer prices in a given security; they stand by,ready to buy or sell at quoted prices.

Underwriting The underwriter assumes the risk of buying a new issue of securities from theissuing entity (corporation or government) and reselling the securities in the market.

Evidence

This document is one of a series of "industry primers" that provide a single, short document foreach industry, and consolidates visual and graphic views of that industry. The primer is intended forindustry managers wishing to gain a top-level view of key industry-specific business trends,technology trends, executive concerns, leading T&SPs, IT investment priorities, go-to-marketmessaging guidelines and key influencers.

Although some of the figures and tables included in this research have been presented in otherGartner documents, consolidating them in this way provides a valuable snapshot of each industry.

This document is published in the following Market Insights:Industry Market Strategies Worldwide


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AnalysisIntroductionInvestment Banking and Capital Markets Industry OverviewSegmentation and Organizational StructureBusiness Priorities and Key Technology Inhibitors and DriversKey Drivers of IT SpendingKey Inhibitors of IT Spending

Investment Banking and Capital Markets Solution MapSolution AreasInvestment Banking

Capital Markets (Sales, Trading, Research)CommunicationsAdministrative and Enterprise Operations

Background and ContextThe ImpactIT Spending and ForecastAssumptions for Sizing the MarketAssumptions for GrowthForecast

Buying Centers, Messaging Map and Key InfluencersBuying Centers and Messaging MapKey Influential Groups

ConclusionShort TermLong Term

Recommended ReadingList of TablesTable 1. Organization Structure Within Investment Banking and Capital Markets FirmsTable 2. Investment Banking and Capital Markets Solution MapTable 3. Investment Banking and Capital Markets IT Spending Forecast (Billions of Dollars)

List of FiguresFigure 1. Investment Services Industry SegmentationFigure 2. Investment Banking and Capital Markets Messaging MapFigure 3. Key Influencers

Investment Banking Market 2011

Documents

Transcript of Investment Banking Market 2011